This commentary was posted recently by fund managers, research firms, and market newsletter writers and was edited by Barron’s.
What’s next for Exxon?
May 27: The vast majority of upstream and integrated oil stocks have generated negative absolute returns over the past 10 years, while all have significantly underperformed major indices. Over the past decade,
(symbol: XOM) the share price is back to -30% … Do you want more activism? Because it is certainly the way to more activism.
The dust has not completely settled in Las Colinas, Texas. Thus, we cannot be certain of the magnitude of the upcoming change to the Exxon board of directors. From the first results, the list of activists won two seats. We do not see an accelerated change in renewables in Exxon’s strategy, as activists will not constitute a majority regardless of the final tally. At the margin, there will likely be more talk and investment in renewables, but a global adoption of wind and solar seems unlikely. Expect more efforts and initiatives on bio / renewable fuels and more widespread commercialization of carbon neutral products of all kinds. (Exxon’s super-majors peers are already doing this) …
Dividend, Dividend, Dividend: In our experience, Exxon Mobil retail holders are focused on the dividend. We are very interested in the board’s commitment to the dividend. We believe that a declaratory declaration in favor of the dividend in the days and weeks to come is important. The market has generally reacted negatively to oil and gas companies that cut their dividend payouts.
—Roger D. Read, Lauren Hendrix Walker, Thomas Link
The future of movie theaters
May 26: Cinemas have been hit hard by Covid-19, which has forced cinemas to close for an extended period. This has allowed studios to experiment with new business models such as PVOD (pay video on demand), where a movie intended for theatrical release is broadcast directly to a streaming service for viewing at home.
The current consensus is that theaters are likely to survive. However, movies shown in a movie theater are likely to be blockbuster films with the potential to generate several hundred million dollars in revenue. Low budget, low potential income movies will most likely be shown direct on a streaming service.
Additionally, a movie’s runtime in a movie theater will likely be much shorter, around 30-45 days, as around 90% of a movie’s box office revenue occurs within the first 30 days. After this period, the film would be shown on a streaming service. Streaming services need new content to help build loyalty and attract subscribers, so getting quick access to blockbusters will be a big factor.
S&P 500 target: 4620
United States Investment Policy Notes
May 26: CFRA has raised its 12-month price target for the
at 4620, which represents a projected price appreciation of 10.3% from the May 25 close. This forecast incorporates historical precedents, fundamental forecasts and technical considerations. This updated forecast was largely influenced by the capitalization-weighted target price spreads by CFRA stock analysts for stocks covered by the S&P 500. Stock prices should continue to be propelled by projections of Growth in global GDP and earnings per share of the global economy continues to emerge from the Covid crisis. Enthusiasm is likely to be tempered, however, by a reduced infrastructure package, waning inaugural year optimism, and lingering concerns about inflation and interest rates.
RIP, technology price deflation
May 25: The chip shortage is adding to inflationary pressure and boosting the recovery of East Asian exporters. Although a secular shift in demand is underway – making semiconductors part of the price of a much wider range of goods and services – investment and prices for integrated circuits remain very cyclical. The boom will be followed by disinflationary pressure on prices, as new productions are brought into service. Beyond the cycle, as the chip supply chain divides and Moore’s Law slows down, a 20-year secular deflationary trend for semiconductors and the devices that use them is likely to come to a halt and can even be reversed.
Semiconductor price increases must continue to run. Industry estimates place the worst of the shortage in Q3 / Q4 2021, with supply / demand broadly in balance by Q2 2022. The pricing power will remain with chip makers as the Demand is normalizing to a higher postpandemic level, end-users of all types carrying inventory and capacity expansion are in their infancy …
Moore’s Law, the observation that the number of transistors in an integrated circuit doubles about every two years, has led to most of the drop in quality-adjusted prices. Performance doubles every two years, with marginal increases or even reductions in manufacturing costs due to the relocation of production. Moore’s Law is coming to an end; As semiconductors get smaller and denser, the technical and capital intensity needed to improve performance has increased dramatically. Technical advances are possible, but the 50% drop in quality-adjusted prices from the late 1990s to the present day will not happen again.
The politicization of production will also increase costs. We believe it is likely that the growing importance of semiconductors for national and economic security, coupled with superpower rivalry, will lead to a bifurcation of the current supply chain and, eventually, the production of block chips. American and Chinese. Optimizing supply chains for geopolitical security is obviously less effective than a purely market-driven process. The cost of building and operating a factory in the United States is 40% higher than in China and 30% higher than in Korea or Taiwan. Taken together, political and technological changes can end an age-old deflationary force, just as semiconductors become a much more important input to economic activity.
The attractiveness of investing in Australia
Paulsen’s point of view
The Leuthold Group
May 25: Like most international stock markets, Australia has lagged the United States for much of the past decade. A few key indicators now suggest that Australia may be on the cusp of taking the lead soon …
Compared to the United States, the Australian economy is more cyclical and more sensitive to commodity prices. Over the past year, the three components of the Australian indicator (the relative performance of cyclical US stocks versus technology stocks, the Aussie / US dollar exchange rate, and the S&P 500 GSCI commodity price index ) increased. The US dollar has weakened considerably against the Australian currency; US cyclical stocks did better while US tech stocks struggled; and commodity prices have skyrocketed around the world.
Is something different this time? Since 1996, there has been a very close relationship between this indicator and the relative performance of Australian stocks. The favorable environment – a weak US dollar, cyclical equity leadership, and higher commodity prices – could make Australia a good place to park a portion of your portfolio.
– James W. Paulsen
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